TaxTMI 
TaxTMI 
TaxTMI 
2021 (7) TMI 581
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....culture produce etc. "M/s Kaneri Agro Industries Limited" (Corporate Debtor) is a company incorporated on 11.09.2018 having authorized and paid up share capital of 7crores 30 lacs. The Corporate Debtor from time-to-time availed loan from the Financial Creditor. On 20.04.2019 the Corporate Debtor has taken a loan of Rs. 10 lacs from the Financial Creditor. That despite repeated reminders and follow ups, the Corporate Debtor miserably failed to pay the outstanding payable amount to the Financial Creditor. 3. The Financial Creditor on 19.10.2019 filed an Application under Section 7 of the IBC for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. In support of the transaction, the Financial Creditor has filed a copy of ledger account of the Corporate Debtor for the Financial Year 2018-19 and 2019-20. 4. Ld. Adjudicating Authority issued notice to the Corporate Debtor and then the Corporate Debtor appeared through a counsel before the Adjudicating Authority and they did not controvert the claim of the Financial Creditor and also the default in repayment of the outstanding dues. Further, the Corporate Debtor through affidavit in reply dated 03.01.2....
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....is also submitted that Ld. Adjudicating Authority exceeded in its jurisdiction while investigating the nature of the transaction. Thus, the impugned order is not in the consonance with the Provisions of explanation to Section 7 (1) of the IBC. 11. Ld. counsel for the Appellant submitted that the Ld. Adjudicating Authority without any material on record drawn inference of collusive Application and directed to issue show cause notice under Section 65 of the IBC. Ld. Adjudicating Authority failed to consider that the loan was obtained by the Corporate Debtor from time to time and was also repaid as an when funds were available with the Corporate Debtor. Not only that, making payment of interest on the loan, the Corporate Debtor had deducted TDS on the said interest component. Ld. Adjudicating Authority without affording opportunity of hearing drawn inference of collusion. Such finding is perverse contrary to the evidence and material on record. The Adjudicating Authority committed a jurisdictional error. Thus, the impugned order deserves to be quashed and set aside and consequently, Application under Section 7 of the IBC to be allowed and the matter be remitted to the Adjudicating Au....
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....due benefit of its provisions to the detriment of the rights of legitimate creditors. 17. Now we would like to refer another pronouncement of Hon'ble Supreme Court in the case of Swiss ribbons (P) Ltd v Union of India, (2019) 4 SCC 17 held; Para 55. ..................................................................................................... ......................................................................................................... "A conjoint reading of all these Rules makes it clear that at the stage of the adjudicating authority's satisfaction under Section 7(5) of the Code, the corporate debtor is served with a copy of the Application filed with the adjudicating authority and has the opportunity to file a reply before the said authority and be heard by the said authority before an order is made admitting the said Application. What is also of relevance is that in order to protect the corporate debtor from being dragged into the corporate insolvency resolution process mala fide, the Code prescribes penalties. Thus, Section 65 of the Code reads as follows: "65. Fraudulent or malicious initiation of proceedings. - (1) If, any person initiates the ....
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...., knowing it to be material such person shall be punished with fine. 20. With the aforesaid discussion we are unable to convince with the argument of Ld. Counsel for the Appellant that Ld. Adjudicating Authority when entered into investigating the nature of the transaction then exceeded in its jurisdiction under Section 7 (5) of the IBC. Issue No. (ii) Whether the transaction in question is Financial Debt and the Corporate Debtor has committed default? 21. As per the definition given in Section 5(8) of IBC, 'financial debt' means a debt along with interest, if any, which is disbursed against the consideration for the time value of money. The essential requirement is of disbursement and consideration for time value of money. 22. It is useful to refer to the judgment of the Hon'ble Supreme Court in the case of Phoenix Arc Pvt. Ltd. (Supra) it is held that: "G.3.2 Financial Creditor and Financial Debt 43 Under Section 5(7) of the IBC, a person can be categorised as a financial creditor if a financial debt is owed to it. Section 5(8) of the IBC stipulates that the essential ingredient of a financial debt is disbursal against consideration for the time value of money. Th....
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....3.........................................................................................................The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in sub-clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of 'disbursement' against 'the consideration for the time value of money' could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said sub- clauses (a) to (i) of Section 5(8) would be falling within the ambit of 'financial debt' only if it carries the essential elements stated in the principal clause or at least has the features which could be traced to such essential elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any deb....
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....t in Para 4 of the impugned order observed that "First transaction has been squared up on the same date i.e., 16.04.2018. Next transaction is squared up in two days. 3rd transaction is squared up on the same date. Thereafter two transactions for Rs. 20 lacs and 10 lacs respectively on 26.07.2018 and 10.08.2018 against which Rs. 10 lacs have been repaid on 17.10.2018 and 20.12.2018. After sanctioned and disbursement of cash credit limit by Bank of Baroda on 12.10.2018. Thereafter a sum of Rs. 25 lacs was given on 05.02.2019 which has been repaid on 15.02.2019, 18.02.2019 and 27.02.2019. Thus, Rs. 10 lacs have remained outstanding as on 31.03.2019 in Financial Year 2019-2020. A sum of Rs. 25 lacs has been given on 17.04.2019 which has been repaid in two instalments within three days". These facts are undisputed. 26. On the aforesaid discussion, we are of the considered view that the transaction in question is not a financial debt within the meaning of Section 5 (8) of the IBC. 27. Now, we have considered whether a default has occurred. In the Application Part- 4 serial No. 1 total amount Rs. 10 lacs disbursed on 20.04.2019 whereas in serial No. 2 the date of default is mentioned as....
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....tions different from the actual legal rights and obligations (if any) which the parties intend to create." (emphasis supplied) Diplock LJ also stated: "But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v Maclure and Stoneleigh Finance Ltd. v Phillips), that for acts or documents to be a "sham," with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a "shammer" affect the rights of a party whom he deceived..." (emphasis supplied) 30. In the light of the preposition laid down by the Hon'ble Supreme Court, we have examined the impugned order. As we have already discussed that the transaction in question is not a financial debt and default has not occurred. In this matter when the Adjudicating Authority sent a notice of Section 7 Application to the Corporate Debtor then Corporate Debtor appeared before Adjudicating Authority through Ld. Counsel and did not controvert the claim of the Financial Creditor and default in ....